Category: Banking & Finance

Demand from fund houses also increased because the investment made by them in CPs have matured in the past few days.

By Manish M. Suvarna

The yields on commercial papers (CP) maturing in three months have eased nearly 10 basis points in the last few weeks owing to huge surplus liquidity in the banking system and improved demand from mutual funds. Similarly, yields on the 91-day T-bill also moderated 10 basis points in August.

As of September 7, yields on CPs issued by non-banking finance companies (NBFC) maturing in three months were hovering between 3.50% and 3.65%, and those on papers issued by manufacturing companies were trading between 3.35% and 3.50%. This is lower than 3.65-70% and 3.40-55% yields traded on papers issued by NBFC and manufacturing companies, respectively, in mid-August. The 91-day T-bill cut-off was at 3.3892% on August 11 and 3.2856% on September 1.

“RBI’s bond and foreign exchange purchases continue to add to the unprecedented level of liquidity surplus, which has increased from about Rs 7 trillion at start of the fiscal to over Rs 11 trillion now. This is exerting downward pressure on the money market and short-end bond yields,” said Pankaj Pathak, fund manager for fixed income at Quantum Asset Management.

The liquidity in the banking system has remained in surplus in the past few weeks despite the central bank conducting variable rate reverse repo (VRRR) auctions. This is because the inflows from G-SAP auctions, government spending, redemption, coupons and CIC paybacks have offset the outflows from GST and VRRR auctions.

Currently, the liquidity in the banking system is estimated to be in a surplus of around Rs 8.79 lakh crore.
In August, the Reserve Bank of India (RBI) injected liquidity worth Rs 50,000 crore through the purchase of government securities under the Government Securities Acquisition Programme, however, Rs 5.50 lakh crore has been withdrawn via VRRR.

Market participants expect that the liquidity in the system is expected to remain range-bound this week due to almost the same amount of inflows and outflows. Kotak Mahindra Bank report showed that the inflows of `99,840 crore is expected this week and Rs 1.06 lakh crore outflows can be seen.

Additionally, the demand from fund houses has improved substantially since June due to inflows into shorter end funds such as duration fund, ultra-short-term fund, liquid fund, etc. Mutual funds are larger buyers of short-term debt papers such as commercial papers and certificates of deposit.

Demand from fund houses also increased because the investment made by them in CPs have matured in the past few days.

Dealers with brokerage firm said that if such high liquidity persists in the system then yields on CPs are expected to moderate further. “It would be extremely difficult for the RBI to suck out this excess liquidity on a durable basis without hurting the bond market sentiment. T-Bill and money market rates may remain suppressed in the near term,” Pathak said.

The Reserve Bank of India, on Tuesday, announced enhancements to the current framework on card-tokenisation services.

The device-based tokenisation framework advised through circulars of January 2019 and August 2021 has been extended to Card-on-File Tokenisation (CoFT) services as well.

Further, card issuers have been permitted to offer card tokenisation services as Token Service Providers (TSPs), said the RBI.

“The tokenisation of card data shall be done with explicit customer consent requiring Additional Factor of Authentication (AFA),” it added.

Review undertaken

The enhancements have been done based on a review of the tokenisation framework and to enable cardholders benefit from the security of tokenised card transactions and also the convenience of card on file or customer card credentials, said the RBI.

The facility of tokenisation will be offered by TSPs only for the cards issued by or affiliated to them. Further, the ability to tokenise and de-tokenise card data, will be with the same TSP.

“The above enhancements are expected to reinforce the safety and security of card data while continuing the convenience in card transactions,” the RBI further said.

It also said that the introduction of CoFT, while improving customer data security, will offer customers the same degree of convenience as now.

Contrary to some concerns, there will be no requirement to input card details for every transaction under the tokenisation arrangement, it further said, adding that efforts of the RBI to deepen digital payments in India and make such payments safe and efficient shall continue.

The RBI had, in March 2020, stipulated that authorised payment aggregators and the merchants onboarded by them should not store actual card data. This would minimise vulnerable points in the system. On request from the industry, the deadline was extended to December-end as a one-time measure.

The RBI has been in regular consultation with the industry to facilitate the transition, it said. The central bank had,on August 25, also extended the scope of tokenisation to laptops, desktops, wearables (wrist watches, bands, etc), Internet of Things (IoT) devices from the initial mobile phones and tablets.